$1.5 Billion In Taxpayer Funds Go Directly To Movie Studios Each Year... And Very Few Jobs Created

from the and-they're-complaining-about-what? dept

If you've been following MPAA boss Chris Dodd ever since the death of SOPA, you'll be aware of his stump speech. He seems to give it every chance he can: "the movie industry is all about jobs, jobs and more jobs." Of course, he lies about the number. He usually trots out his favorite 2.1 million figure, ignoring the fact that the Congressional Research Service showed it's really 374,000 people employed in the movie business.

What isn't mentioned so much (though, it depends on the audience) is the fact that various tax subsidies that different states pay to movie studios means that $1.5 billion in taxpayer money goes straight to Hollywood studios. Perhaps that would be justifiable if it created jobs. But the evidence there is actually lacking. That link involves the NY Times looking closely at Michigan, which not too long ago put in place massive subsidies for Hollywood to make movies in their state. The cost? Suffering Michigan citizens foot the bill. However, Michigan Governor Jennifer Granholm thought it was worth it because a local movie director wanted more work at home (and because, when she was younger, she had hoped to be a movie star). Lots of studios are looking to make movies in Michigan now, because the cash back from the state is way too lucrative to pass up.

Within two months, 24 movies had signed up to film in Michigan — up from two the entire year before. The productions estimated that they would spend $195 million filming there, and in return they would be refunded about $70 million in cash.

Before long, residents were rushing out on their lunch breaks to catch a glimpse of celebrities like Drew Barrymore, who was filming her movie “Whip It” in Ann Arbor, and Clint Eastwood, who was shooting “Gran Torino” in the Detroit area. Even Michael Moore, who was filming a movie about corporate welfare called “Capitalism: A Love Story,” sought and received incentives.

But does it create jobs? Not really. The story is horrifying. It involves Hollywood hotshots continually demanding more and more subsidies from the state and insisting that jobs would be plentiful as soon as they could get things up and running, but balking any time anyone asked them to put the job promises in a contract:

Ms. Granholm declared the city in a financial crisis in February 2009 and appointed an emergency manager, Fred Leeb. The city’s budget was $54 million a year, but it was overspending by an estimated $7 million to $12 million. Pontiac was also still weighted down by old incentives it had given to businesses like G.M.

The movie studio was an added challenge, since it was seeking financial incentives from the city — not to mention from other branches of the government. It won redevelopment tax credits from the federal government and separate aid from the state that included incentives for technology companies that hire residents.

Job creation became a point of contention with beleaguered Pontiac, which was being asked to waive virtually all property taxes for the studio. The investors claimed that thousands of people would be employed, but Mr. Leeb said that when he asked for job numbers to be written into the contract, the investors refused. “We started seeing some backpedaling,” said Mr. Leeb, who added that the negotiations featured “knock-down, drag-out fights.”

But wanting to bring the big lights of Hollywood to Michigan, eventually the state agreed to it. Who paid for the subsidies? Former state workers basically were forced to bet their pensions on Hollywood:

Over the objections of some local officials, the state agreed to use the state workers’ pension funds to guarantee the bonds. If the investors failed to pay, the retirees would be on the hook.

And the promised jobs? Keep looking. Sure, some crews from LA flew in, but for locals? Almost none.

The studio had created only 200 positions by the summer of 2011, according to correspondence between the company and local officials. And when temporary construction workers were excluded from the tally, Pontiac’s records show, the studio reported only two employees in 2010 and 12 the next year.

Earlier, in the article, they note that this particular project was pushed through with the promise of 3,600 jobs. You don't do that by hiring two people one year and a dozen the next.

How about tax revenue from the local operations? Yeah, big Hollywood studios have ways of avoiding paying that sorta thing, even as they're collecting millions in local subsidies:

The city later had problems collecting some of the taxes because Disney operated through a separate business entity that was difficult to track down, he said.

“This is a glamorous industry if you want to talk about Hollywood, but it’s not very glamorous for the municipality that wants to collect something,” Mr. Schimmel said. Pontiac, he said, was outgunned.

Disney declined to comment.

And... soon after that, the studios moved on to other sexier states that suddenly offering up bigger incentives than Michigan. And who did it cost? Oh yeah: remember those state workers' pensions? Yup. Them.

When the bill for the studio’s bond interest came due in February this year, it paid only a portion, $210,000. The state pension fund had to pick up the remaining $420,000....

In August, the studio defaulted on the entire $630,000 payment on the bond, despite a decision by Mr. Snyder to temporarily allocate some film incentives.

All around, it's a horror story that's being repeated in other states and countries around the globe. Hollywood studios go around pitching "jobs!" and demanding special taxpayer-funded incentives, offering giving them millions to film in a certain location. The filmmakers take the subsidies, bring in crews from LA, hire a couple people here or there... and then move on, leaving a mess in their wake. And this is the industry that is demanding even more protection from the federal government via copyright law? When is enough enough?

Re: No!

Taxes going to Waste and Corruption and lies is not a new News Story.It is the oldest one in the book !!!
And they all scream over their BIG DEBT ! Maybe we ought to be fixing the Waste, closing all these low life loopholes, and getting rid of these no good tax incentives.

Re: Don't ever go near NPR again, Mike! It's taxpayer subsidized too!

Grasping at straws you are.

Mike isn't saying taxpayer funded things are bad. He's commenting on how it's bad when taxpayers are left holding the bag for Hollywood, in addition to having to give them incentives in the first place. So the tax payers lose twice. First through the incentives and then through being left to pick up the check when Hollywood says, "I've got to go to the bathroom." Minutes before it arrives, while ducking out a side exit.

But yeah, any opportunity to rail against Mike. You're totally not a tool. /s

Re: Don't ever go near NPR again, Mike! It's taxpayer subsidized too!

It's bad because unlike things like libraries and free-to-air television this taxpayer-funded thing does the complete opposite of what its supporters claim it does, you dumb twat. It's like paying a chef who not only doesn't cook you food but punches you in the face for your money.

I hope to God that you don't ever work in the service industry. Who the hell would buy something from someone who screams "FREETARD" at them?

What about private banks, too?

If the US is anything like the UK, your taxpayers also funded billions to bail out the banks when the financial crisis hit and now the most vulnerable are being hit through spending cuts to healthcare and education while the richest individuals and corporations avoid their tax obligations through various loopholes.

It doesn't take a rocket scientist to figure out who the real crooks are.

Re: They had the wrong job

May be funny to mention but there are actually TONS of farms in Michigan. And as a Michigander, this story PISSES ME OFF. I will be forwarding it to about everybody I can think of. It has become one of my main goals in life to see copyright undone. The oppression and removal of my rights that it represents is appalling. Good thing is most people in my generation (I am almost 30 now) sympathize and agree with me. They mostly understand. Most of them are even starting to forget the idea of "if I can abuse copyright I can make money". My points are getting through. Crappywood's are not.

Re: Small potatoes?

There is also a recent study done about how the government subsidies are not creating jobs.

I've always considered that a no-brainer. Not only do governments universally suck at creating jobs, but it's the wrong battle and it's not what governments should do anyway.

Like the content industries focussing on piracy rather than maximising sales, a government focussing on "creating jobs" instead of encouraging the economic conditions within the country so that industry creates jobs has totally the wrong end of the stick.

Sadly it's standard government practice to tackle the symptom rather than the cause because the symptom is what gets seen and they want to be seen to be "doing something".

Re: Re: Re: Small potatoes?

The government is the largest employer of teachers, police, and fire fighters is the government.

Well governments are. Other than federal law enforcement agencies, the federal government doesn't employ any of those people, state and local governments do. So that is also a matter not of the national government directly creating jobs, but setting up conditions for others to create them. Though some of that could be sending money to states, counties, and cities.

Re: Re: Re: Small potatoes?

The government is the largest employer of teachers, police, and fire fighters is the government.

True, though I was really talking about the business of governing rather than the "support staff". However, all those jobs you mention exist as a consequence of the needs of society rather than the government directly creating the job. And even if you lump that in under creating jobs, which I'll admit depends on your definition of "creating", look at the mess most of those public services are in - they tend to be beaurocracy heavy, underfunded, understaffed, inefficiently run and underperforming. So I stand by my assertation that governments in general suck at creating jobs.

To be fair, there is a thing called secondary effects and secondary jobs created, but with so low direct effects, the indirect effects are going to be rather limited. Also, as Mike pointed out, the non-local workers are not worth much compared to locals and their effect is hardly worth 300 times the number of direct jobs.

I also think that it is pretty naive to call the direct effects jobs. They are more likely "employment years" to denote its temporary effects. The slow and painful lingering going on for years afterwards is what they call growth, but that is often temporary effects lasting longer rather than actual growth. As with Silicon Valley, real growth will come from innovation and in this case it is innovate or die for the businesses depending on the studios. There is no reason to believe that innovation in these companies are better than the 10 % survival in Silicon Valley.

This is the big problem with lots of tax incentives and such to 'create' jobs.

You're not creating jobs when you tell a company they can pay only half the tax rate if they move to your area, you're relocating jobs.

Also, studies show that once those tax incentives expire, the companies often don't keep their ends of the bargain, they just move to another location willing to 'bribe' them with more tax incentives.

All this does is starve the tax payers of tax revenue needed elsewhere, and raise everyone else's tax rates/cut spending on things for everyone else like money for local schools. Since the money has to be made up from somewhere.

Short term this 'growth' may work, but long term you're just destroying yourself and your own economic growth.

Seriously

Why does the state not just seize the film , very simple, if they cannot pay there debt the product goes to the debtors, if they have used subsidiaries to try to get out of this a judge could soon overcome that with tales of selective and purposefully avoiding taxes by creating desperate entities from each other, a crime if i am not mistaken.

and the politicians believe that the ordinary citizens are the thieves that deserve to be fined 1.5 million dollars for sharing something and put in jail for years! i wonder if those same politicians would put the entertainment industries execs in jail if the ordinary citizens managed to raise more money for lobbying for a change?

If Michigan hosted 24 movie shoots in a year, with an average of 300 crew per shoot, shooting for 6 months per production - it would have created exactly 3600 jobs for that year.

Film production subsidies have to be looked at in the context of the residual value to the community. If a movie spends 10 million building sets, those building supplies more than likely came from a local lumber yard, who employs locals to fill their orders. Caterers, security guards, medics, drivers and vehicles, props suppliers, hotels etc all get a big piece of the pie when film crews come to town.

On a typical 50 million dollar movie, at least 15 million of that budget is spent in the locale where it is being shot. With 24 shoots, that represents an additional 360 million dollars added the local economy. Not to mention the 3600 well-paid crew members who now have more money to spend at their local retailers.

Most articles on Techdirt are accurate and insightful. This one is flat out wrong.

Re:

How permanent are those jobs?

If the movie shoots upped and vanished would there be no more demand for lumber, food, security, medicine?

Because that's the impression everyone gets whenever the MPAA screams "jobs!", like each shoot permanently adds a magic number to the perpetually-growing statistic and if movie shoots ceased to exist every single business is irreparably fucked.

Re: Re:

I think you just hit on Chris Dodd's 'magic' MPAA 'employment' count.....

He's been counting every single temporary job created by movie production since the first movie was produced...

Apparently nobody told him that of the 300 people working on the first movie shoot, 250 of them will be the same people working on the next shoot, and so on. He obviously ignores the fact that jobs that last 6 months are not an indicator of economic growth... but then he's never pushed that just the 2.1 million people employed by the MPAA (at some point in the past for at least one day per individual....)

Re:

Re:

Uh... temporarily moving employees to another state is not creating jobs, and does little if anything for the "recipient" state. They bear the burden of the added infrastructure support while those employees pay taxes (other than local sales taxes) at their home of record. As you pointed out, there may be some very temporary local boosts in spending, but it seems to me that a "boom and bust" cycle is hardly the way to build a healthy economy. And at best this seems like this was more of a burp than a boom.

Re:

If Michigan hosted 24 movie shoots in a year, with an average of 300 crew per shoot, shooting for 6 months per production - it would have created exactly 3600 jobs for that year.

Except almost all of the shoots were only for about a month or two. And if a studio did two or three shoots in that year they used the same people, so not as many jobs as you are projecting.

Film production subsidies have to be looked at in the context of the residual value to the community. If a movie spends 10 million building sets, those building supplies more than likely came from a local lumber yard, who employs locals to fill their orders. Caterers, security guards, medics, drivers and vehicles, props suppliers, hotels etc all get a big piece of the pie when film crews come to town.

I happen to live in the area this article talks about and that was the story we were told too.

But in reality, it didn't work out that way so much. Most of that was from the studio's "preferred vendors" which were mostly from the area where the studio's home office is, not the local retailers.

On a typical 50 million dollar movie, at least 15 million of that budget is spent in the locale where it is being shot. With 24 shoots, that represents an additional 360 million dollars added the local economy. Not to mention the 3600 well-paid crew members who now have more money to spend at their local retailers.

Well, besides your over inflated numbers, that really didn't work out that way either. These people blew into town and out again as fast as they could. I'm sure they spent some money with the local economy, but not enough to justify the subsidies.

Most articles on Techdirt are accurate and insightful. This one is flat out wrong.

No, not flat wrong at all. The whole movie subsidy thing in Michigan was revisited and was found to be lacking and was capped at $25 million this year and is being rethought by our Congress.

A review of the movies awarded $1 million or more in tax subsidies listed in the 2009 Michigan Film Office annual report found that six of those seven movies received more in subsidies than they made up at the box office in U.S. theaters.

Same deal in Boston

Some politicians in Massachusetts have been pressing to eliminate the movie subsidies here because production companies have been selling the tax credits to other entities.

"Most tax credits issued by the state to film production companies end up being sold to brokers, which then resell them at a profit to financial firms, other corporations, and wealthy individuals to slash their tax bills.

"The incentives are so generous - rebates of up to 25 percent of production costs in the state - that most film companies do not end up owing nearly enough in taxes to use the credits. So they sell them at a discount, fueling a booming industry for brokers, accountants, and savvy taxpayers."

For the most part, other than union construction workers, production companies only hire a few locals as production assistants. Sure, hotels and restaurants make some money, but when the state is handing out 25% of the film's budget in subsidies, the total the state benefits is very small.

@Jay

This is what people colloquially call in Europe and the rest of the world "Socialism". Now, if someone could find a way of making this mess work. Not that "Free Market" manage to works in global scale either.

Anyway, so Hollywood and the remainder of the entertainment industry go around the world destroying protected enviroments used for their filmsets, diverting fiscal incentives, making creative accounting, refusing to pay the money owned to the artists throught ridicullous allegations, and forcing governments to turn oppressive policies against their own people.

I would call them for their viciousness barbarian pirates, but since they have government sanction, i guess the correct term would be "Corsairs".

Jennifer Granholm was the worst governor Michigan has had in the modern era, and that's saying something considering we had Engler.

She was born in Canada, raised in California, didn't move to Michigan until 1990, and got her start elected to Attorney General by running against a guy who was under investigation for working with the mob. She was elected governor in 2002 on the heels of an extremely unpopular outgoing Republican. Under her, Michigan's economy went down the toilet (well BEFORE the big economic crash) so bad that we lost 10% of our population between 2000 and 2010.

In 2009 she took one last dump on Michigan's economy by paying off her Hollywood friends this terrible movie tax credit and the day after her term expired in 2010 she went back to California to become a talk show host on Current TV.

She's a slimeball and I sincerely hope the rest of her life is a miserable failure, if only for the good of the rest of the country.

A little perspective

First of all Mike, good article. Thanks for pointing these things out and I totally agree with the main gist here. However, as is usual when you write about my industry you've gotten a few details wrong, so let me add my 2 cents.

I remember the year Michigan offered it's most generous subsidies, 2010. I was one of the crew who flew in to work on those projects, but, no, not from "Hollywood". I don't live in L.A. and am not in an L.A. local. It is true that every movie brings some crew from L.A.. Producers and directors natch, and usually department heads. At least 15% of the crew, sometimes much more. The studios prefer and will try to hire local from there on down, mainly because it's cheaper for them, (those of us not based in L.A. make $10.00/hr. less than our "Hollywood" brethren). The reason so many flew in to Michigan that year is because local crew was quickly depleted. Michigan's movie production union local is combined with their stagehand union, as several states are. They had a small pool of seasoned film people, and a lot of marginally qualified folks who normally worked in theater (although now there are a lot more experienced film workers). I work in set lighting and the local was sending us makeup and wardrobe technicians! The point I want to make though, is that not all the crew flying in is from Los Angeles, we come in from all over the country.

The whole tax-rebate film incentive idea is actually a Canadian idea. British Columbia and Ontario kicked off the trend in the 90's with agressive incentives, and that's why so much film work went there. They've continued to have a successful industry there as well. Yes the industry and it's cheerleaders have the states competing to offer the best incentives. I hate it, it's a form of corporate welfare. But when it comes time for incentive renewal in my own state I will campaign for it, because if it gets cancelled, there goes my job. To put thing in perspective though, my state in a typical recent year gave less than $8 mil in film subsidies but almost $200mil in subsidies to hi-tech companies to build and run chip fabs and the like. This kind of tax abatement corporate welfare goes on in a lot of industries.

You are correct that film production tends to be ephemeral. Some states have done well with it on a long term basis however. Louisiana has a thriving film industry that's been going more than a decade now, started off by subsidies. I believe South Carolina has done well, because their union locals have been stricter about requiring local hires. New Mexico benefits from long term success. And of course the Canadians continue to do well.

Re: A little perspective

Thanks for adding that information about the industry, very interesting.

I was one of the crew who flew in to work on those projects, but, no, not from "Hollywood". I don't live in L.A. and am not in an L.A. local.

I think the point was not that they brought in people who live in LA, but that the LA-based studios brought in non-local workers. The Michigan taxpayers don't really care where they came in from.

The reason so many flew in to Michigan that year is because local crew was quickly depleted.

Sounds like the government was pretty stupid (shocking!) to listen to promises of thousands of local jobs when they didn't even have the people available to fill those jobs. Maybe they should have asked exactly what kind of jobs they would be so they would know if they could actually be filled locally. And insisted the local jobs be put in the contract - duh.

Sure, Michigan citizens lost their pensions and the state had to foot the bill for Hollywood, thanks to governor Jennifer Granholm kowtowing, but at least there's 14 new jobs. Heck, a few lucky people got to see Drew Barrymore in person.

In a just world, Hollywood and Disney would be forced to pay back every last penny they rooked the people out of. But who am I kidding? Neither the state nor the government are willing to take hard action. The content industries are untouchable, wrecking havoc wherever they go.